The much-awaited proposals of the European Commission to reinforce economic governance within the EU have now been published. The approach is based on three pillars that will underpin the future economic growth in the Union.

The first pillar aims to reinforce the Stability and Growth Pact. The second addresses economic imbalances and divergences in competitiveness. The third works towards establishing a permanent and robust framework for crisis management. This signals a major change in the EU's economic governance. While some countries may object to this stricter control on grounds that it infringes individual states sovereignty, few would disagree that the recent Greek debt crisis has cruelly exposed the deficiencies in the present system of managing public finances in the EU.

The backdrop to these changes has been widely reported and commented upon by both politicians and economic analysts. It is evident that no country can increase its public debt by incurring fiscal deficits year after year without putting at risk future economic growth. EU economies are strongly interlinked through the single market and a new fiscal surveillance system must therefore apply to all member states.

The countries within the eurozone will come under more strict scrutiny. Apart from the two main indicators of fiscal rectitude - public debts that are not in excess of 60 per cent of GDP and annual fiscal deficits not exceeding three per cent of GDP - the Commission is proposing the introduction of a balanced score card that will monitor macro-economic items including unit labour costs, housing market price bubbles, the level of private debt and other underlying structural challenges being faced by particular countries.

Reinforcement of economic governance can only be effective if the new proposals are tied to sanctions that will be applied against those states that fail to follow the rules. These sanctions could range from forced payments into interest-bearing deposits of an EU fund to the suspension of access to the Cohesion Fund.

Such changes will have a major effect on the way public finances are managed in Malta. The short-term strategy to control the annual fiscal deficit will need to be broadened to include more concrete plans for reducing the public debt which at present is hovering around the mark of 70 per cent of GDP. Malta also needs to address more effectively the structural weaknesses in public finances by ensuring that public services, especially health, education and pensions, are financially sustainable in the long term.

This country can no longer turn a blind eye to the structural weaknesses that threaten competitiveness, especially those related to an aging population. While there is no doubt that the Commission proposals are primarily aimed to avoid the collapse of the euro and the EU itself, one must understand that this is also another opportunity for Malta to strengthen its economy to become more attractive to international investors.

Politicians must take people in their confidence by explaining the tough implications of these changes on their lives. Budgetary surveillance by the European Commission is not a threat to sovereignty but an opportunity to put the basis of the country's future economic growth on solid ground.

When Malta joined the EU six years ago, the aspiration of many was to ultimately achieve the quality of life enjoyed by the richer EU countries. This can only be done if the country submits itself to the discipline of good economic governance.